Employee, Worker or Self-employed? How to tell the difference and what the implications are.What types of employment are there? 1. Permanent employee 5. Contractor 2. Temp 6. Agency worker 3. Self-employed 7. Casual 4. Freelancer 8. Zero hourIn fact there are only three types of legal employment status, employee, worker and self-employed.Who decides?HMRC or Employment Tribunal. Not the employer and not the worker. If HMRC findsemployed rather than self-employed, ET unlikely to find differently, and vice versa, althoughdecisions are not binding on each other.How do they decide?They will look at number of factors and case law, based on how the relationship betweenthe two parties works. Substance rather than form. Substitution Control Regular pay Tax & NI responsibility Holiday pay, sick pay, maternity pay etc Location and tools and/or facilities Integration into business Financial risk or reward Exclusivity ContractWhy does it matter?££££ in fines from HMRC and/or compensation following an ET.While all is good, only real risk is HMRC. If worker becomes unhappy about something, getspregnant or you want to dispense with their services, they may claim employment rights.
Personal Service Consultants (Also might be called freelancers or contractors) 1. Regularly work for a single company or business 2. Have a contract which describes them as a consultant or similar 3. Provide specialist advice or assistance in connection with the operations of the business or specific projects 4. Have contracted to provide services for a minimum number of hours/days each month/year 5. Report to the companys managers/directors, but are not under any direct supervision or control when working 6. Are expected to perform the work themselves 7. Submit invoices for work completed and are responsible for paying own tax and National Insurance 8. Provide own equipment 9. Work from home or a private office, but go to the companys premises when necessaryNot employees because are they not directly controlled by the business or integratedin the business = WORKER
Independent consultants (Also might be called contractor or freelancer)1. Bid or provide quotes to secure work2. Have specific targets or projects to complete, although can decide when and how to do the work3. Are not under direct supervision when they are working4. Do not have to perform the work personally - they can hire someone else to do the work or engage helpers at their own expense5. Submit invoices for work completed6. Are responsible for paying own tax and National Insurance7. Do not receive any holiday pay or sick pay when unavailable for work8. Provide major items of tools, equipment or materials that are a fundamental requirement to complete a job9. Have to correct unsatisfactory work in your own time and at your own expense10. Are responsible for meeting any losses, as well as taking the profits from work11. Provide your services, or could provide services, to a number of different clients or customers12. Operate under a contract (maybe called a contract for services or a consultancy agreement) which describes them as self-employed, a consultant or an independent contractor =SELF-EMPLOYED
Employees 1. Are required to attend work on a regular basis unless they are on authorised leave (eg holiday, sickness absence, maternity leave) 2. Are required to work a minimum amount of hours (whether fixed or variable) and expect to get paid for the hours they work 3. Have a manager or supervisor who is responsible for their workload, directing when particular work should be completed and the way it should be undertaken 4. Cannot send a substitute to do their job 5. Work at the companys premises or at a location specified by the company 6. Use tools and equipment provided by the company 7. Are included in the companys organisational chart 8. Work exclusively for the company or have another job, but it is entirely different from their work for the company 9. Have tax and National Insurance deducted from wages 10. Have received (or would be entitled to) contractual or Statutory Sick Pay from the company when unable to work through illness or injury 11. Have received (or would be entitled to) contractual or Statutory Maternity or Paternity Pay from the company when on maternity or paternity leave 12. Receive payment from the company when taking holiday 13. Can join the company pension scheme 14. Are subject to the companys disciplinary and grievance procedures 15. Have a contract, statement of terms and conditions, or an offer letter which uses terms such as employer and employee and/or is described as an employment contract = EMPLOYEE Note – If (1) – (8) are true, then ensuring (9) – (15) are not true in an attempt toavoid an ‘employee’ diagnosis won’t work. It will simply expose you to legal action as you are not complying with your obligations as an employer.
Casual workers1. Occasionally undertake work for a particular company or business2. Have no entitlement to be offered work and do not have to accept it3. Contract describes the relationship as casual, freelance, zero hours, as required or similar4. Are under the supervision or control of a manager or director5. Are expected to perform the work themselves6. Have tax and National Insurance contributions deducted from wages7. Use tools, equipment or materials provided by the company = WORKER
Agency workers 1. Undertake work for a business (or multiple businesses) through a recruitment agency 2. Have a contract with the agency which states that they are not their employee 3. Have a contract with the agency which does not guarantee that they will find them work 4. Can decide whether or not to accept or refuse work 5. Have wages paid and tax and National Insurance deducted by the agency 6. Are paid by the agency when on holiday or receives payment in lieu of accrued holiday at the end of a contract 7. Can leave the agency or a particular assignment giving little or no notice 8. Can have an assignment terminated by the end user business with little or no notice 9. Have signed on the books of several employment agencies 10. Work on a variety of assignments through the year for different companiesThe lack of day-to-day control by the agency whilst on assignment usually preventsthem from being their employee.Lack of obligation to offer or accept work prevents them from being an employee ofthe business they work for. = WORKER(Agency workers could be offered an employment contract by a recruitment agencyand would therefore become the agencys employee.)